Yahoo Q2 results give little cause for celebration

Company’s comeback linked to Chinese investments, not splashy moves.

President and CEO of Yahoo, Marissa Mayer, arrives for the Time 100 gala celebrating the magazine's naming of the 100 most influential people in the world for the past year, in New York, in this April 23, 2013 file photo. Yahoo Inc. trimmed its outlook for 2013 revenue on July 16, 2013 after reporting ongoing reductions in display advertising sales volume and prices in the second quarter, signs that CEO Marissa Mayer's effort to revive the struggling Internet giant is not going as rapidly as expected. REUTERS/Lucas Jackson)

By:Michael LiedtkeThe Associated Press, Published on Tue Jul 16 2013

SAN FRANCISCO—Yahoo’s second-quarter results didn’t give investors a reason to celebrate the completion of CEO Marissa Mayer’s first year running the Internet company.

The numbers released Tuesday showed Yahoo Inc.’s earnings are still rising, but they also highlighted the challenges facing the Sunnyvale, Calif. company as it loses ground to rivals Google Inc. and Facebook Inc. in the online advertising market that generates most of their revenue.

Wall Street focused on Yahoo’s revenue problems instead of its earnings gains. The company’s stock dipped 48 cents, or nearly 2 per cent, to $26.45 (U.S.) in extended trading after the report came out.

Despite that downturn, Yahoo’s shares have surged nearly 70 per cent since Mayer defected from a top job at Google to attempt a turnaround at one of the Internet’s best-known brands.

But Yahoo’s stock has largely been propelled by a steadily appreciating investment in Alibaba, a fast-growing Internet company in China, made eight long years ago.

Yahoo reaped a $7.6 billion (U.S.) windfall from selling nearly half its stake back to Alibaba Group last year and is expected to bring in even more money when it divests the rest of its holdings in the Chinese company within the next few years.

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Alibaba is also lifting Yahoo’s earnings, as the second-quarter report illustrated. Yahoo’s made more money from its investments in Alibaba and Yahoo Japan during the second quarter than it did from its U.S. operations. That’s the second straight quarter this year that has occurred.

Yahoo earned $331 million, or 30 cents per share, in the three months ending in June. That compared with net income of $227 million, or 18 cents per share, at the same time last year.

If not for certain items unrelated to its ongoing business, Yahoo said it would have earned 35 cents per share. That was a nickel above the average estimate among analysts surveyed by FactSet.

Cost cutting helped boost the earnings. Yahoo’s second-quarter operating expenses, excluding ad commissions, fell 9 per cent from the same time last year. The company’s payroll stood at 11,500 workers at the end of June, also down by 9 per cent over the past year.

Revenue for the period declined 7 per cent from the same time last year to $1.14 billion.

After stripping out ad commissions, Yahoo’s revenue came to $1.07 billion. That was slightly below analyst projections and marked a 1 per cent decline from last year. It’s the first time that Yahoo’s net revenue has fallen since Mayer took over.

Despite the erosion, Mayer said she remains encouraged by Yahoo’s progress. She has consistently said it may take two or three years before the company’s ad sales are growing as rapidly as the rest of the Internet market. In the meantime, she has been focused on improving Yahoo’s employee morale, engineering acquisitions that can bring in more promising technology and engineering talent and tweaking the company’s products.

“Our business saw continued stability, and we launched more products than ever before, introducing a significant new product almost every week,” Mayer said in a prepared statement about the Yahoo’s second-quarter performance.

“It’s a lengthy turnaround process,” said Mark Mahaney, an analyst at RBC Capital Markets in San Francisco who rates Yahoo’s shares outperform. “If she (Mayer) is successful, it will show up in the company’s fundamentals two to three years from now.”

Mayer has embarked on a shopping spree that comprised at least 17 companies, including her $1.1 billion (U.S.) purchase of blogging platform Tumblr Inc., as well as mobile-application makers Stamped Inc. and Jybe Inc. and Summly Ltd., the news- reading application created by teenager Nick D’Aloisio. Earlier this month, Yahoo paid about $70 million for Xobni Corp., a maker of contact-management software, two people said at the time.

With a file from Bloomberg

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